2014 QCCQ 10099, 2014 QCCQ 10099

Darren M. Reinblatt CPA inc. c. Fusion Sourcing & Garment Management Inc. 2014 QCCQ 10099 COURT OF QUEBEC Small Claims Division CANADA PROVINCE OF QUEBEC DISTRICT OF MONTREAL Civil Division No: 500-32-141553-141 DATE: October 1, 2014 ______________________________________________________________________ PRESIDED BY THE HONOURABLE DAVID L. CAMERON, J.C.Q. ______________________________________________________________________ DARREN M. REINBLATT CPA INC. 5436, Royalmount Ville Mont-Royal (Québec) H4P 1H7 Plaintiff v.

FUSION SOURCING & GARMENT MANAGEMENT INC. 5436, Royalmount Ville Mont-Royal (Québec) H4P 1H7 and ISIDORE BELL […] Côte-Saint-Luc (Québec) […] Defendants ______________________________________________________________________ JUDGMENT ______________________________________________________________________ [ 1 ] The Plaintiff, Darren M.

Reinblatt CPA Inc.(“Reinblatt”), the successor company to Reinblatt and Co., an accounting firm, sues a former client, the Defendant Fusion Sourcing & Garment Management Inc. (“Fusion” sometimes referred as the “company” or the “corporation”), and one of its principals, Mr Isidore Bell, for an unpaid balance on invoices for professional services. [ 2 ] The claim against Fusion is stayed because of the bankruptcy of that company on December 20, 2013. [ 3 ] The action against Isidore Bell is based on the allegation that he agreed to pay the invoices and that he should be held accountable for this debt, because he withdrew money from the company’s bank account on the eve of its bankruptcy. [ 4 ] Mr Bell’s defence asserts that, as a person lending money to the Fusion to finance its operations, he paid certain of Reinblatt’s accounts which he recognised as being valid debts of the company, that he settled certain invoices for a compromised amount, and that he refused to pay other invoices which he felt were either unfounded, exaggerated or not appropriately justified.

But, he denies personal liability. ISSUES

[ 5 ] To resolve this case, the Court must determine: 1) Is Mr Bell personally liable for the debts owed by Fusion to Reinblatt? 2) If so, what, if any of amounts claimed are owed? FACTS [ 6 ] On the basis of the testimony of Darren Reinblatt, who now is the sole professional interested in the Plaintiff and that of Gerald Reinblatt, a former principal of the predecessor firm, proof was made that a flat fee of $ 2,500.00 was agreed to among the promoters of the corporation for assistance with the start up. [ 7 ] That agreement was made before the incorporation.

Fusion was set up as a result of work done by Reinblatt, and the corporation assumed this obligation along with an ongoing obligation to pay certain services connected to book-keeping, payroll, and sales-taxe declarations from time to time on an hourly basis. [ 8 ] The business was not successful despite the fact that Mr Bell bankrolled it as creditor for a substantial amount of money.

His financing of the enterprise took the form of cash advances and direct payment of accounts owed to various suppliers. [ 9 ] Reinblatt attempts to make the case that, by agreeing to pay certain bills, Mr Bell engaged his personal liability for all of the services provided from time to time. [ 10 ] Testimony was given that Mr Bell promised to pay invoices and then reneged on that promise. [ 11 ] Mr Bell’s testimony is, however, consistent with his defence; as a person financing the company by advancing loans, either through cash or by assuming payment of invoices, he did not generate a personal liability for himself, except when he agreed specifically to pay a given invoice. [ 12 ] His testimony is quite clear that he never recognised the start-up fee of $ 2,500.00, having not been a party to its negotiation.

He nevertheless accepted and paid the majority of Reinblatt’s invoices up until the time he decided to no longer finance Fusion, with a few exceptions. He gave the Court examples of invoices he did not feel were justified that he refused to pay and others that he paid at a reduced amount. [ 13 ] On the eve of the Fusion’s bankruptcy, he withdrew a total of $2,160.16 from its bank account.

He testified that he required a substantial amount of these funds as an advance to the trustee in bankruptcy, and that he used the other part of the funds to cover the travel expenses of one of the other principals of the company for which he had initially advanced funds on his credit card.

ANALYSIS [ 14 ] To establish the Defendant Bell’s liability, the Plaintiff would either have to prove a suretyship, sometimes referred to as a personal guaranty or, pierce the corporate veil by demonstrating a fraudulent activity on the part of Mr Bell, or attempt by him to subvert public order which would preclude setting up the corporation’s independent legal existence as a defence. [ 15 ] Dealing first with the suretyship, it is obvious on the evidence that Mr Bell was not himself in a contractual relationship as principal with Reinblatt for the provision of professional services; this obligation was incurred by the initial founders of the company who met Reinblatt, but it was assumed by the corporation, as is evidenced by the fact that the invoicing was directed solely to the corporate entity. [ 16 ] A suretyship is not presumed, it must be proved through unambiguous evidence.

While Mr Bell, as shareholder and founder of the company, took a personal interest in knowing what services had been provided before paying, this does not change the fact that he was essentially lending money to the company by making his payments, not assuming a personal liability as principal debtor nor as guarantor.

Any ambiguity in this situation works against the Plaintiff who has the burden of proof to establish the existence of an obligation that is neither presumed nor admitted by Mr Bell. [ 17 ] That burden of proof was not met. [ 18 ] Secondly, the Civil Code of Quebec recognises that a party can not use the distinct legal personality of a corporation to mask fraud or conduct that is against public order. [ 19 ] The use of the residual funds that were in the company’s bank account went to meet valid obligations of the company i.e. the travelling expenses of its employee and a deposit to the trustee in bankruptcy as an advance towards his fees.

Neither of these payments constitutes a fraud or an attempt to subvert a provision of public order.

[ 20 ] While payments made to a creditor on the eve of bankruptcy are presumed to be preferences under the Bankruptcy Act, and, under certain circumstances can be returned to the benefit of creditors generally, this would also be the case if the money had been used to pay Reinblatt, as opposed to other creditors, at a point in time when the company became insolvent. [ 21 ] Fusion became insolvent because it was not generating revenue, and Mr Bell decided to pull the plug, so to speak.

By putting an end to his funding of the company, Mr Bell did not do anything fraudulent or inconsistent with public order, he simply made a decision to cut his losses. [ 22 ] The fact that he had been paying suppliers and other creditors did not establish an ongoing liability to do so. [ 23 ] Therefore, on the whole, the Plaintiff has not established its burden of proof and the action therefore cannot be maintained. FOR THESE REASONS, THE COURT: DISMISSES the Plaintiff’s claim; CONDEMNS the Plaintiff to pay the Defendant’ judicial costs of $ 125.00. __________________________________ DAVID L. CAMERON, J.C.Q.

Date of hearing: September 23, 2014